Cow lease/share arrangements can offer a logistical solution for cattlemen.
By: Jim Krantz, Cow/Calf Field Specialist at SDSU Extension
South Dakota cattlemen challenged by dwindling grazing resources to support their production systems may find cow lease/share arrangements as an alternative to herd liquidation. According to the United States Department of Agriculture’s National Agricultural Statistics Service, South Dakota’s cow herd totals (ranked 5th nationally) grew by five percent from 2012 to 2013. Maintaining that growth may be difficult with the continued conversion of pasture and hay ground to crop acres.
Cow lease/share arrangements offer a logistical solution in some instances for cattlemen with surplus grazing acres or winter feed and those who do not have those vital resources available to them. Those contractual agreements typically are unique in almost every circumstance due to the individuality of their management programs, herd genetics, cow frame size or long term goals.
Fundamentally, with share agreements in particular, discussions begin with the identification of the contributions each party will provide in this cow partnership. From the owner’s (lessor) viewpoint, those contributions usually include the cows themselves along with an accompanying health program and the bull power to service the cows. The latter is sometimes listed on the lessee side of the ledger instead depending on the desires and goals of both parties. Inputs typically listed as contributions from the lessee might include feed, grazing acres, labor, equipment and facilities. When individual contribution values are tallied, some idea of the percentage of inputs each will provide can then serve as a guide for sharing the calf crop value. A common industry value used extensively in recent years is a 70% - 30% share arrangement where the cow owner receives 30% of the calf value at a designated date. In nearly all arrangements, the cow owner will receive all the cull cow proceeds.
As these agreements are drafted, it is important for both parties to remember that this industry value may or may not fit every situation. This standard usually implies that the agreement includes a time frame of one year that typically runs from October to October. Should that time frame vary, adjustments to the percentage of calf value shared may need to be altered as well.
While this percentage may be the primary driver in the share arrangement, there are a number of additional factors that need consideration as lessor/lease discussions continue:
- All agreements should be in writing: While many business arrangements have been done on a handshake to the benefit of both parties, there are numerous examples of verbal agreements that have failed because the parties couldn’t agree on exactly what had been agreed to. Having things in writing goes a long way to eliminate those problems.
- Start date/end date: As stated above, typical share agreements run from October to October but should be specifically documented in writing, regardless of what it is. That timeline should also include a date when the owner needs to take responsibility for his share of the calves.
- Bred Cows: Cow should be guaranteed pregnant when they arrive. (If October start date)
- Cow numbers: On multi-year share agreements, is there a "minimum number" of cows guaranteed by the owner? (How are replacements handled?)
- Pregnancy test: Cows should be pregnancy-tested each fall to document non-bred individuals and eliminate winter feed costs involved with wintering them.
- Heifer development and/or backgrounding: If calves are to be backgrounded or heifers developed, a separate agreement needs to be made where the owner of the calves pays for the feed costs and yardage expenses. Combining this enterprise with the cow lease makes determining an equitable split of the calf crop much more difficult.
- Cow Body Condition Score: Herd body condition score should be assigned to cows when care for them is transferred, so both parties are aware of the expectations for cow condition if the agreement is terminated at some point later. Use of a third party to assist both parties in that process is recommended.
- Death loss verification: Procedures utilized by insurance companies to verify cow death loss can be adopted and included in the cow share agreement. That typically involves the services of a licensed veterinarian with the expense normally assigned to the cow owner.
- Health programs: Expectations for herd health, cows and calves, should be outlined in the agreement as well. Unique marketing programs sometimes have limitations on vaccines or treatment protocols making it essential to list them so they can be complied with. In addition, both party’s veterinarians should be consulted for input, especially if the new environment is significantly different than the present one.
- Creep feeding: Creep feeding calves for some is a standard practice while other cattlemen prefer to forgo that management scheme. That decision should also be a part of the agreement. If it is utilized, creep expenses are normally shared in the same percentage as calf value is.
- Method of division: Next to agreeing on sharing of calf value, how that share is to be divided may deserve some serious consideration. When all the calves are sold at public auction, the process is simple mathematics. Where calves are designated for owner/operator possession, the process is something to be discussed thoroughly as the agreement is being prepared.
Cow lease/share arrangements may be a win-win scenario for cattlemen with cows and limited feed resources, especially grazing acres, and cattlemen who have the resources to meet those very needs. However, only after establishing a business mindset and doing some personal homework are cow share agreements truly destined to be "win-win" for all involved.
Two resources may be valuable to those interested in exploring cow share arrangements: